Transcript Chapter 1 Slides

Chapter 1
The Study of
Business,
Government,
and Society
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
ExxonMobil Corporation
o Company history
o Main business is discovering, producing, and selling
oil and natural gas
o Descended from the Standard Oil trust
o In 1890 Congress passed the Sherman Antitrust Act to
outlaw its monopoly
o Once had more than a 90% market share of the
American oil market
o The values of its founder, John D. Rockefeller, defined
the company culture
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ExxonMobil Corporation
o The leader
o John D. Rockefeller (Standard Oil)
o Emphasized cost control, efficiency, centralized
organization, and suppression of competitors
o ExxonMobil is no longer the commanding trust of
Rockefeller’s era
o Its power is challenged and limited by economic,
political, and social forces
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ExxonMobil Corporation
o As a corporate citizen ExxonMobil funds worldwide
programs to benefit communities, nature, and the arts
o The story of ExxonMobil raises central questions
about the role of business in society
o When is a corporation socially responsible?
o How can managers know their responsibilities?
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ExxonMobil Corporation
o What actions are ethical or unethical?
o How responsive must a corporation be to its critics?
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What is the Business–Government–
Society Field?
Business
Profit-making activity that provides products and services to satisfy
human needs
Government
Structures and processes in society that authoritatively make and
apply policies and rules
Society
A network of human relations composed of ideas, institutions, and
material things
Idea
An intangible object of thought
Value
An enduring belief about which fundamental life choices are correct
Ideology
Institution
Material things
A bundle of values that creates a particular view of the world
A formal pattern of relations that links people to accomplish a goal
Tangible artifacts of a society that shape and are shaped by ideas and
institutions
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Figure 1.1 - How Institutions Support
Markets
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Why is the BGS Field Important to
Managers?
o To succeed in meetings its objectives a business must
be responsive to both its economic and its
noneconomic environment
o Recognizing that a company operates not only within
markets but within a society is critical
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Why is the BGS Field Important to
Managers?
o A basic agreement or social contract exists between
economic institutions and other networks of power in
a society
o Establishes the general duties that business must fulfill
to retain the support and acquiescence of the others as
it organizes people, exploits nature, and moves
markets
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Figure 1.2 - The Market Capitalism Model
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Four Models of the BGS Relationship: The
Market Capitalism Model
o Depicts business as operating within a market
environment, responding primarily to powerful
economic forces
o The market acts as a buffer between business and
nonmarket forces
o Understanding the history and nature of markets is
important to appreciate this model
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Four Models of the BGS Relationship: The
Market Capitalism Model
o The advent of market economy, reshaped human life
o Market economy: The economy that emerges when
people move beyond subsistence production to
production for trade, and markets take on a more
central role
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Four Models of the BGS Relationship: The
Market Capitalism Model
o Capitalism: An economic ideology with a bundle of
values including private ownership of means of
production, the profit motive, free competition, and
limited government restraint in markets
o Managerial capitalism: A market economy in which
the dominant businesses are large firms run by
salaried managers, not smaller firms run by ownerentrepreneurs
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Four Models of the BGS Relationship:
The Market Capitalism Model
o Important assumptions
o Government interference in economic life is slight
o Laissez-faire: An economic philosophy that rejects
government intervention in markets
o Individuals can own private property and freely risk
investments
o Consumers are informed about products and prices and
make rational decisions
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Four Models of the BGS Relationship:
The Market Capitalism Model
o Moral restraint accompanies the self-interested
behavior of business
o Basic institutions such as banking and laws exist to
ease commerce
o There are many producers and consumers in
competitive markets
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Four Models of the BGS Relationship:
The Market Capitalism Model
o The BGS relationship according to the market
capitalism model:
o Government regulation should be limited
o Markets will discipline private economic activity to
promote social welfare
o The proper measure of corporate performance is profit
o The ethical duty of management is to promote the
interests of shareholders
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Four Models of the BGS Relationship:
The Market Capitalism Model
o Criticism
o Increased prosperity comes at the cost of increased
inequality
o Results in base values being energized and virtue
being eroded
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Figure 1.3 - The Dominance Model
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Four Models of the BGS Relationship: The
Dominance Model
o Represents the perspective of business critics
o Business and government dominate the great mass of
people
o Those who subscribe to the model believe that
corporations and a powerful elite control a system
that enriches a few at the expense of the many
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Four Models of the BGS Relationship: The
Dominance Model
o Proponents of the dominance model focus on the
defects and inefficiencies of capitalism
o Populism: A political pattern, recurrent in world
history, in which common people who feel oppressed
or disadvantaged seek to take power from a ruling
elite seen as thwarting fulfillment of the collective
welfare
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Four Models of the BGS Relationship: The
Dominance Model
o Populist reform movement opposed the dominance
model
o Marxism: An ideology holding that workers should
revolt against property owning capitalists who exploit
them, replacing economic and political domination
with more equal and democratic socialist institutions
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Figure 1.4 - The Countervailing Forces
Model
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Four Models of the BGS Relationship: The
Countervailing Forces Model
o Suggests exchanges of power among them,
attributing constant dominance to none
o This is a model of multiple forces
o It differs from the dominance model in rejecting an
absolute primacy of business and crediting more
power to a combination of forces and interactions
rendered paltry by the dominance model
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Four Models of the BGS Relationship: The
Countervailing Forces Model
o Conclusions:
o Business is deeply integrated into an open society and
must respond to many forces, both economic and
noneconomic
o Business is a major force acting on government, the
public, and environmental factors
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Four Models of the BGS Relationship: The
Countervailing Forces Model
o To maintain broad public support, business must adjust
to social, political, and economic forces it can
influence but not control
o BGS relationships evolve as changes take place in the
ideas, institutions, and processes of society
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Figure 1.5 - The Stakeholder Model
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Four Models of the BGS Relationship: The
Stakeholder Model
o Stakeholder: An entity that is benefitted or burdened
by the actions of a corporation or whose actions may
benefit or burden the corporation
o The corporation has an ethical duty toward these
entities
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Four Models of the BGS Relationship: The
Stakeholder Model
o Primary stakeholders: Entities in a relationship with
the corporation in which they, the corporation, or both
are affected immediately, continuously, and
powerfully
o Secondary stakeholders: Entities in a relationship
with the corporation in which the effects on them, the
corporation, or both are less significant and pressing
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Four Models of the BGS Relationship: The
Stakeholder Model
o Exponents of the stakeholder model debate how to
identify who or what is a stakeholder
o The stakeholder model reorders the priorities of
management away from those in the market
capitalism model
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Four Models of the BGS Relationship: The
Stakeholder Model
o Criticism
o It is an unrealistic assessment of the power
relationships between the corporation and other
entities
o It sets up too vague a guideline to substitute for the
yardstick of pure profit
o There is no single, clear, and objective measure to
evaluate the combined ethical/economic performance
of a firm
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Four Models of the BGS Relationship: The
Stakeholder Model
o The interests of stakeholders vary that they conflict
with shareholders and with one another
o Most fanatical pursuit of profit creates greater lasting
good for society than pursuit of profit tempered by
compassion
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Four Models of the BGS Relationship: The
Stakeholder Model
o Advocacy for the stakeholder model:
o A corporation that embraces stakeholders performs
better
o It is the ethical way to manage because stakeholders
have moral rights that grow from the way powerful
corporations affect them
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Our Approach to the Subject Matter
o Comprehensive scope
o Interdisciplinary approach with a management focus
o Strategic management: Actions taken by managers to
adapt a company to changes in its market and
sociopolitical environments
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Our Approach to the Subject Matter
o Use of theory, description, and case studies
o Theory: A statement or vision that creates insight by
describing patterns or relationships in a diffuse subject
matter
o A good theory is concise and simplifies complex
phenomena
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Our Approach to the Subject Matter
o Global perspective
o Historical perspective
o History: The study of phenomena moving through
time
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